Chinese President Xi Jinping often promotes the prospect that the Chinese consumer will help to lift the global economy out of the Covid-19 recession. But new data shows that the Chinese consumer won’t likely be replacing their higher-spending Western counterparts any time soon.
Earlier this month, at the China International Import Expo in Shanghai, Xi vowed that China’s rising middle class would consume no less than US$22 trillion worth of imported foreign consumer goods over the next decade.
Upon the signing of the Regional Comprehensive Economic Partnership (RCEP), a trade pact that brings together 15 Asian economies including China, Japan, Australia and South Korea, China’s Commerce Ministry said that the massive potential of China’s middle class was still far from being fully tapped by foreign enterprises.
Indeed, there has been a steady flow of impressive National Statistics Bureau data about resilient average wage growth that has appeared to defy pandemic-stunted economic growth. China is one of the few economies worldwide expected to record positive gross domestic product (GDP) growth in 2020.
Xi is now promoting his newly announced “dual circulation” policy, a gambit that seeks to drive more domestic consumption-led economic growth and spending on imports. There are reasons to believe that China’s middle class will start spending more as the yuan appreciates against the dollar, making imported goods relatively cheaper.
At an October State Council press conference marking the 71st anniversary of the Communist republic, the NSB claimed that China now boasted no less than 400 million middle class consumers and that the average personal income figures in major cities for the first three quarters all achieved “high single-digit growth” over 2019.
For instance, working residents in Shanghai, China’s largest city economy and most populous urban center, earned 54,126 yuan (US$8,236) on average in the first nine months, up roughly 5% year-on-year, according to the NSB. Beijing’s corresponding figure was 51,772 yuan ($7,868).
A quarterly salary survey conducted by Zhilian, China’s largest jobs and employment consultancy, painted an even more optimistic picture. A middle class resident in Beijing made 11,623 yuan ($1,766) a month between June and September, an all-time high in the survey’s history. Shanghai’s figure was 11,226 yuan ($1,706), the same survey showed.
However, an unexplained change in the NSB’s data-crunching methodology since the third quarter has raised new questions about the Chinese consumer’s underlying spending power, as statisticians replaced average income figures with what they say is a “more accurate” median monthly income measure.
As such, the NSB’s latest median monthly income figures across key Chinese cities have put a certain damper on Beijing’s earlier upbeat assessments about the country’s swelling middle class and rising spending power.
NSB median income data for the first nine months of this year showed that the middle class in Beijing, Shanghai, Shenzhen and other second-tier cities is making far less than formerly estimated. Those in Beijing make the highest amount, 6,906 yuan ($1,050) per month, followed by Shanghai’s 6,378 yuan ($969) and Shenzhen’s 5,199 yuan ($790).
NSB data also revealed that in the first three-quarters of this year the median income for the nation’s entire working class stood at 20,512 yuan ($3,117), or 2,279 yuan ($346) per month, 15% lower than the per capita average figure announced earlier by the bureau.
The disparity in data suggests that the wealth and spending power of China’s middle and working class has previously been exaggerated.
The new median income figures, however, corroborate Chinese Premier Li Keqiang’s surprise revelation at a National People’s Congress press conference in May that 600 million Chinese, or nearly half of the world’s second-largest economy’s population, were living a hand-to-mouth existence with a monthly income of 1,000 yuan ($152) or even less.
“You cannot even rent a home in any big cities with just 1,000 yuan,” the premier said at the televised question-and-answer event at the time.
Yuan Qiansheng, an assistant professor of economics at Shanghai Fudan University’s School of Business, told Asia Times that the NSB started publishing median income data following the premier’s candid admission on the state of the nation’s still massive working poor.
“These latest median income data present a fuller picture of China’s middle and working class… The reality on the ground is that, if one can make 5,000 yuan ($760) a month, he is in fact way better off than a vast majority of his working peers in major cities.
“Average income figures can sometimes be misleading. One extreme case can be that, if you put a vagrant next to [Alibaba founder] Jack Ma, China’s richest entrepreneur according to Forbes, then the two’s average income can beat China’s entire middle class. I’m glad that the NSB now releases median income figures to reflect more truth,” said the academic.
The fact that the Chinese government is now publishing median data and Li is speaking openly about the state of the working class suggests that Beijing is finally acknowledging huge inequalities in income. This is also consistent with other reforms, for example, of the financial sector.
Xinhua reported in a feature on domestic consumption that young shop assistants at a beauty salon near Beijing’s glittering Guomao business district could earn about 2,000 yuan ($304) a month. It revealed that most of their cosmetics and personal care products were bought cheaply online, not in expensive, glitzy Guomao stores.
“The real internal demand is the demand from the masses. Forget luxury items and expensive homes, when Beijing doubles down on spurring domestic consumption and importing more foreign goods, the focus should be squarely put on the average wage-earners like these shop assistants,” said Xinhua.
China Merchants Bank, widely seen as the bank of choice for wealthy Chinese, said in its 2019 annual report that only 1.8% of its total client base of 144 million had deposits of 500,000 yuan ($76,000) or more. These VIP clients, the report said, had combined deposits of 6 trillion yuan ($912 billion), accounting for more than 80% of the bank’s total deposits.
That wealth disparity could help to explain why consumption is still in the doldrums across major cities. Shanghai reported a 4.6% year-on-year contraction in total retail sales in the first three quarters of this year.
Beijing’s corresponding figure dropped by 13.1%. Number-crunching officials in both cities warned that consumption and retail sales would not likely return to the positive territory this year.